Santa Rally in Doubt? Will BOJ Rate Hike Deepen Market Downturn?
U.S. November employment data released on Tuesday showed the unemployment rate unexpectedly rising to 4.6%. While still relatively low by historical standards, it marks the highest level since early 2021. Data from the University of Michigan indicate that as of November, most consumers expect unemployment to continue rising over the next year.
According to Morgan Stanley, if this week’s U.S. labor data show moderate softness, it could increase the probability of further Federal Reserve rate cuts, which would be supportive for equities. “We are firmly back in the ‘good news is bad news, bad news is good news’ regime,” Wilson wrote in a note.
He explained that while a strong labor market is positive for the economy, it reduces the likelihood of rate cuts in 2026.
Against the backdrop of softer employment data, $CME Bitcoin - main 2512(BTCmain)$ rebounded modestly. However, a heavy slate of macroeconomic data will continue to influence markets this week.
On December 18–19, 2025, the Bank of Japan is expected to raise its policy rate from 0.5% to 0.75%, the highest level since 1995, sending the strongest tightening signal in three decades.
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Historically, every BOJ rate hike has been followed by a period of correction in U.S. equities. With U.S. stocks currently at record highs, this does not necessarily mean history will repeat itself—but a cautious stance is certainly warranted.
Citi strategists, however, remain optimistic, forecasting $S&P 500(.SPX)$ to rise 12% to 7,700 by the end of 2026. The core drivers behind this outlook are strong earnings growth and an overall supportive Federal Reserve policy backdrop.
Will the Santa Claus rally still arrive?
Will a BOJ rate hike once again drain global liquidity and trigger a correction?
Are you staying in cash waiting for a pullback, or fully invested and riding out the drawdown?
Leave your comments to win tiger coins~
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That said, I’m watching the BOJ closely. A hike to 0.75% would be a meaningful shift, and historically BOJ tightening has coincided with higher global volatility. With U.S. stocks at record highs, a more cautious near-term stance feels reasonable, even if history doesn’t repeat perfectly.
In terms of positioning, I’m neither fully in cash nor blindly all-in. I stay invested in core holdings while keeping some dry powder to deploy if macro or BOJ headlines trigger a pullback. If a Santa Claus rally arrives, I participate; if not, I’m prepared to ride out some volatility.
@Tiger_comments @TigerStars
However the Santa Claus Rally is starting to feel a lot like that Tooth Fairy : a lovely idea that we desperately want to believe in but the evidence is getting a little shaky.
The real bogeyman this holiday season is the Bank of Japan. A potential BoJ rate hike is the "lump of coal" that could crash the party. The culprit? The massive Japan Carry Trade.
Traders have borrowed trillions of yen at near zero interest rate and funelled that cash globally, fueling a massive market boom. If Bank of Japan raises rates, the carry trade rapidly unwinds.
The result : A sudden withdrawal of global liquidity, threatening a sharp market correction.
So let's proceed with caution and stay calm.
@Tiger_comments
Likely path:
• Choppy markets into BOJ clarity
• Selective strength, not broad participation
• Relief once macro uncertainty clears
• Risk assets recover if global liquidity fears fade
Santa may arrive late, but history suggests he rarely skips the party entirely unless liquidity truly breaks.